authID Inc. (AUID) — Form 10-Q summary
Reporting period: Three and nine months ended September 30, 2023; unaudited. authID provides biometric identity verification and passwordless authentication through its Verified platform. The company has exited its Cards Plus and MultiPay operations and is focusing on Verified. Amounts are in U.S. dollars unless stated otherwise.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $43,389 | $30,023 | $118,387 | $261,484 |
| Loss from continuing operations | $(3,715,703) | $(6,190,347) | $(16,397,649) | $(17,656,872) |
| Net loss | $(3,717,618) | $(6,334,949) | $(16,180,056) | $(18,208,504) |
| Operating cash flow | Not presented by quarter | Not presented by quarter | $(6,224,162) | $(9,553,050) |
| Cash at period end | $3,811,014 at September 30, 2023 | $3,237,106 at December 31, 2022 |
- Q3 revenue increased year over year, but nine-month revenue fell about 55%, principally because legacy authentication services were phased out. Verified software license revenue was $42,369 for Q3 and $114,269 for the nine months.
- Operating expenses were $3.78 million in Q3 and $7.59 million for the nine months. The filing does not present a continuing-operations gross margin; revenue remains very small relative to expenses.
- Cash used in operations improved by about $3.33 million year over year for the nine-month period. Financing activities provided $6.87 million, primarily from $6.32 million net stock-sale proceeds and a credit-facility draw. Cash increased by approximately $574,000 from year-end.
- Working capital was approximately $3.3 million. Total liabilities were $1.64 million, including $220,309 carrying value of convertible debt. The remaining notes have $245,000 principal, bear 9.75% interest and mature March 31, 2025. The amended Garchik facility was terminated in May 2023.
- Basic and diluted loss per share was $(0.47) for Q3 and $(3.05) for the nine months. Share and per-share figures reflect the 1-for-8 reverse split, applied retrospectively.
Changes, unusual items and capital structure
- Continuing-operations loss improved year over year, while nine-month net loss also narrowed. However, 2023 nine-month results include a $7.48 million convertible-note conversion expense and a $381,000 debt-extinguishment loss. The conversion expense reflects additional shares issued above the original note conversion terms.
- Lower general and administrative and research and development spending reflected the February 2023 labor reduction plan and other cost cuts. The plan involved 12 employees and six contractors leaving; the company reported approximately $850,000 of severance expense for the nine months.
- In May, the company raised approximately $6.4 million net from an equity offering and exchanged most of its convertible notes for shares. Convertible debt declined from $7.84 million at December 31, 2022 to $220,309 at September 30, 2023, while common shares outstanding rose from 3.18 million to 7.87 million. A reverse split became effective July 7, 2023.
- The company revised previously reported Q1 and first-half 2023 stock-based compensation and losses after identifying an error involving awards with market vesting conditions. It recorded the correction in this filing; it reported no effect on total equity at June 30. Management characterized the cumulative effect as qualitatively immaterial.
- Non-GAAP Adjusted EBITDA from continuing operations was a loss of $2.13 million in Q3 2023 versus $3.28 million in Q3 2022, and a loss of $5.99 million for the nine months versus $9.13 million. The measure excludes specified items, including interest, stock compensation and, where applicable, conversion and debt-extinguishment costs; it is not a substitute for GAAP results or cash flow.
Outlook, risks and other disclosures
- Going concern: Management states there is substantial doubt about the company’s ability to continue as a going concern. The company had a $156.3 million accumulated deficit and used $6.2 million of operating cash in the first nine months. It says additional capital is needed, with no assurance financing will be available on acceptable terms or at all.
- Remaining performance obligations were $1.87 million at September 30, including $1.77 million of other non-cancelable contracted amounts. The company expects about 34% to be recognized in the following 12 months, but timing depends on customer usage and the estimate relies partly on discussions with customers. This is not formal revenue guidance.
- Management expects product, personnel and technology investment to support revenue expansion, but provides no specific revenue, profitability or cash-flow targets.
- Risks highlighted include limited revenue and recurring losses, dependence on additional financing and customer adoption, competition, cybersecurity and biometric-data risks, reliance on third parties, and possible disruption to outsourced development from the wars in Ukraine and the Middle East.
- Disclosure controls were deemed ineffective at September 30, 2023 because of a material weakness in review of accounting for the complex convertible-note exchange. Management’s remediation plan is quarterly identification of complex accounting issues and review by an outside CPA advisory firm; the company says it engaged such a firm for this filing.
- The filing reports no legal proceedings expected to have a material adverse effect and no material off-balance-sheet arrangements. Nasdaq notified the company that it regained bid-price compliance after the reverse split; it also reported compliance with the stockholders’ equity requirement following its financing and note exchange.
- A related-party services agreement with The Pipeline Group, whose CEO is a company director, called for $47,000 monthly during a one-year term; an October 25, 2023 amendment increased the monthly payment to $70,000 for the remainder of the term.
Important facts for investors to verify
- Cash runway, expected operating cash needs and the amount, timing and terms of any further financing.
- Whether contracted obligations convert into revenue as anticipated, including customer usage assumptions underlying the $1.87 million RPO.
- Details and potential effects of the stock-compensation revision, the material weakness and progress toward effective controls.
- Potential dilution from equity financing and outstanding securities: 1.69 million options and 488,018 warrants were outstanding at September 30, 2023.
- Terms, oversight and continuing costs of the related-party Pipeline Group agreement, including its October amendment.